L-3 Communications Hits 52-Week High on Prudent Buyouts

Shares of L-3 Communications Holdings Inc.LLL scaled a new 52-week high of $156.65 on Nov 25, before closing a little lower at $156.36. With a market cap of around $12.09 billion, L-3 Communications has seen its shares soar roughly 27.73% in the last one year, outperforming the 22.71% gain of the Zacks Categorized Electronics-Military Systems industry over the same period.

What’s Driving the Stock?

L-3 Communications focuses on upgrading technology and pursues strategic acquisitions to enhance its capabilities and serve its customers better. On Nov 22, it completed the acquisition of Luton, UK-based MacDonald Humfrey (Automation) Ltd for $280 million and expanded its foothold in the aviation security market.

Moreover, the acquisition will enhance the company’s capability to provide “scalable, operationally based networked security systems.” This is because MacDonald Humfrey’s business is a synergistic fit for L-3 Communications’ needs. It will also create lucrative opportunities for L-3 Communications’ business by leveraging the existing global distribution channels. It has been estimated that by 2017 end, MacDonald Humfrey will contribute about $135 million to L-3 Communications’ top line, thereby providing a significant boost to the bottom line.

In the defense arena, Trump’s victory in the Presidential race may turn out to be a growth catalyst for L-3 Communications Holdings and other defense majors like Lockheed Martin Corp. LMT, Boeing Co. BA and Northrop Grumman Corp. NOC. During his pre-electoral campaign, Trump had made promises of an increase in defense spending and expansion of troops. Moreover, a quick review of the past reveals that the Conservative Republican Party has usually advocated higher military spending.

Last month, L-3 Communications’ delivered stellar third-quarter 2016 results. The company’s earnings beat expectations and were up 7.4% year over year. Funded orders in the reported quarter were $2.7 billion, reflecting a 22.2% year-over-year increase. Consequently, the company raised its core earnings and revenue guidance for 2016.

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